Student loans have become the Grinch that Stole Christmas for many of us recent grads this year. For a lot of people, including myself, my student loans entered repayment this month. The initial payment plan for repaying my costly law school education is staggering to say the least. I’d be lying if I said it hasn’t put a damper on my holiday spirits this year. While this Grinch is taking some of my presents this year (and for the next 29 for that matter) there is a way to manage even the most seemingly insurmountable of student loan payments.
There is help out there you just have to know where to look. Typically the people at local branches for your banking institution really won’t have a clue as to how to help you manage your student loans. Most local branches don’t have a student loan specialist and have no idea of how the process works. Then of course you get referred to a hotline and wait for hours and we all know how frustrating that can be.
The National Student Loan Database is a good place to start so you can see all of your student loans in one place. This will give you an idea of how much you owe for your education and get organized, instead of trying to make heads or tails of convoluted statements from multiple loan servicers. If you’re still living near your alma mater, make an appointment with your financial aid department. They will be able to show you the total amount of your loans, where those loans are being serviced, and what your best plan of attack is in keeping your repayments to a manageable monthly amount.
Additionally, Equal Justice Works has a service dedicated to helping recent law school graduates manage their student loans. They’ll help you put together a debt portfolio so you can take stock of all the loans that you have and give you options as to how you can repay your loans without breaking the bank every month. This is another good option if you feel the need to sit down with someone to figure out where you’re at and help get a better understanding of how the repayment process works.
If you already have a pretty good handle on the information about your student loans and your payments are still too high you have a couple of different options. First, you can lower your monthly payments with individual loan servicers. Typically once you gain online access with the institution serving your loan you are given the option to switch from the “standard repayment” plan to an alternative repayment plan. Your loans automatically begin on the standard repayment plan which calculates your monthly payments at a fixed sum to allow you to pay off the loan in ten years.
Alternatives to the standard repayment plan allow you to reduce your monthly payment by extending the term of the loan. An extended repayment plan will recalculate your monthly payments to a thirty year term. While the payment may be lower, ultimately the amount you pay will be much more under this plan because interest continues to accrue. The upside is that there is no penalty to paying off loans under this plan early.
Another option is the Income Based Repayment plan. Those experiencing a partial financial hardship are eligible to enroll in this payment plan. The IBR allows you to cap your student loan repayments at 15% of your monthly discretionary income. Furthermore, under this plan there is loan forgiveness on the balance of the loan after timely payment over a twenty-five year period. New changes proposed by President Obama will lower this to 10% of monthly discretionary income and loan forgiveness after a twenty year period set to go into effect as of July 1, 2014. Something to consider though is that enrollment in this repayment plan requires yearly filing of financial information and once enrolled, you are only permitted to change your repayment plan back to the standard repayment plan. For additional information on the various repayment plans available you visit Finaid.org
Lastly, if you have several loans being serviced by multiple institutions, it may be worthwhile to look into consolidation. Getting a Direct Consolidation Loan through the federal government allows you to make monthly payments to one service provider and also has the potential to lower your monthly payments. Depending on the type of loan you have you also may be able to reduce your interest on the loan and therefore pay less throughout the term. Having to make only one monthly payment simplifies the process and reduces the stress of having to keep up with multiple due dates and payment amounts each month.
Student loan repayments can certainly be a Grinch this time of year, especially for those of us just starting out. However, there are several options available to us to make sure that we can afford those payments without running ourselves into financial ruin or doing without basic necessities. Get organized and take charge of your debt, the Grinch doesn’t have to take all your presents this year. Happy Holidays!
All opinions, advice, and experiences of guest bloggers/columnists are those of the author and do not necessarily reflect the opinions, practices or experiences of Solo Practice University®.